A 5%-Annual Coupon British Has a Par Value of £1,000

A 5%-annual coupon British has a par value of £1,000, matures in five years, and has a yield to maturity of 4%. The current exchange rate is $2.00 = £1.00 and inflation is forecast at 3% in the U.S. and 2% in the U.K. per year for the next five years. If a dollar-based investor used forward contracts to redenominate this bond into dollars, what would be his rate of return?

A) 5%
B) 6%
C) 7%
D) 8%